Policy rate on hold as changing MPC causes rate path uncertainty

The National Bank of Poland (NBP) kept its 1.5% policy rate on hold, as expected. There was little new information available in the statement. Even though inflation surprised on the downside in September, the NBP did not change its inflation language. The penultimate paragraph on inflation is virtually the same. The NBP asserts that it expects inflation to gradually rise. 

At the same time, it notes that lower commodity prices, the slowdown in emerging market growth, and a weaker inflation outlook abroad raise uncertainty about the pace of inflation returning to the target. Meanwhile, the first flash inflation estimate put it at -0.8% y/y last month compared to -0.6% the previous month as declines in energy prices and lower core inflation have brought headline inflation lower.

On growth, the NBP retained its view that GDP is rising at a steady pace. It opined that recent declines in activity indicators "will probably prove temporary." Monthly indicators weakened in August with retail sales (SA) decelerating substantially to just 2% y/y while IP (SA) eased to 3.6% y/y. This appears to imply that Q3 15 GDP growth might ease. However, that GDP growth has been steady at around 3.5% for the previous nine quarters, notwithstanding considerable volatility in monthly indicators, notes Barclays.

"There are several reasons why NBP may be reluctant to cut rates right away. The currency has weakened and we think it may weaken further, thus causing monetary policy conditions to loosen and possibly helping to push inflation higher. Because of strong base effects we agree with the NBP's assessment that inflation will begin to rise in Q1 and H1 16. Thus H1 16 may not be an opportune time to cut rates further. On the other side, growth is potentially vulnerable if global growth slows further; its path could be the key to future rate decisions. While the degree of uncertainty is very high, we retain our base forecast that there will not be rate cuts over the next year", states Barclays.